Wednesday, September 4, 2013

Imbalance in economy as development hindrance

华商与经济转型系列62：经济不平等 发展绊脚石

夏伟文 & 陈薛卉

The
word “unequal” is too sensitive in Malaysia. Minus the politic propaganda, inequality
in economy is a common problem to developing countries includes Malaysia. Unequal
economy becomes so sensitive because we view it in a very narrow concept, which
is inequality between ethnic groups. In fact, economic development can be unequal
in three aspects, namely (i) between sectors of economy, (ii) geographically,
and (iii) between ethnic groups. Each has its impact to Malaysia development
goal towards industrial nation by 2020.

Economic Inequality between Sectors

Pre-independent,
Malaysia economy was heavily dependent to tin mine, then rubber and palm oil. After
that, industrialization has shifted the imbalance in favor to manufacturing and
service sector. Data from Malaysia Statistical Department shows that mining
sector only contributed about 12.6% of Gross Domestic Product (GDP) in year
2010. In the same year, agriculture contributed 10.6% as compared to
manufacturing (26.1%) and services sector (32.3%). Meanwhile, Despite
agricultural modernization effort, Bank Negara Malaysia Annual Report 2011 shows
that capital intensity (capital assets to employed person) for agriculture
sector is just RM12, 573 for the period between 2001 and 2010 as compared to manufacturing
sector (RM78,317) and service sector (RM105,893). Mining sector recorded an
extraordinary capital accumulation due to mineral exploration in oil and gas
industry.

Focusing
on high value-added manufacturing and services sector will help to sustain our
rapid economic growth. Thus, economic inequality between sectors gives no harm
as long as it did not jeopardized food security. In fact, developed nations
from United States to Germany and Japan all have economic inequality between
sectors. Decades ago in India, they planned to put almost all their attention and
resources on information technology (IT) sector. Their then Prime Minister and
government reasoned that trickling-down-effect from IT sector will provide
resources for development of other sectors and overcome poverty. Switzerland, a
relative small country in Europe is famous and success with its banking and
Swatch watch. Does Malaysia have its own recognized brand, trademark or
extraordinary successful industry?

Hope
that ETP and other strategic plan can produce Malaysia first “Oppa Gangnam”
success – extraordinary hit (investment return) with just one song (specific
sub-sector). If that happened, it is a good inequality, right?

Geographical Economic Inequality

Economic
inequality also can happen geographically. It is common that urban is more
developed than rural for almost all countries include Malaysia. Since colonial
era, Western Peninsular Malaysia is more developed than its Eastern part. Malaysia
Statistical Department estimated that in year 2010, Kuala Lumpur has the
highest GDP per capita at RM55, 951, which is about 6.8 times more than
Kelantan, the lowest at RM8, 273. Kuala Lumpur GDP per capita almost doubles Penang,
the second highest state. Sarawak and Selangor come third and fourth highest. High
concentration of industries and businesses activities in Kuala Lumpur, Penang
and Selangor greatly improved the income level of those states. Sarawak has its
timber and oil to make it into among top income states in Malaysia.

Nonetheless,
there are two critical aspects to ponder. Firstly, what could be the impact of
such inequality between states? Secondly, can ETP solve this inequality?

On
the first aspect, recent happening at European Union (EU) countries,
particularly to Greece can be a lesson. If Greece or any member countries
bankrupt or greatly lagged behind in economic development, the whole EU economy
may be dragged into trouble. The more developed West Germany did saw this
problem during their reunification with East Germany. Young workers were moving
to the West, causing further imbalances and disturbances to both economies.
Thus, the West had been subsidizing and helping the East to bridge this
inequality gap.

Economic
disparity between states in Malaysia has seen similar happening. Youngsters
from poorer states like Kelantan, Terengganu, Kedah, Perlis and even Perak
moving to Klang valley for jobs. As a result, insufficient manpower in
emigrating states but overcrowded and high demand for basic necessities in recipient
states caused inflation to rental, food and other goods and services. Those in
Johor crossed the causeway to Singapore, thus resulting in brain drain. These
certainly disrupt our economic progress.

Currently,
the five economic corridors, Greater Kuala Lumpur Plan and ETP seem covered the
development of all states in Malaysia. However, bias attentions still give in
favor to Klang Valley area. Perhaps, development of oil and gas under Eastern
Corridor Economic Region (ECER) and ETP may uplift the states of Terengganu and
Kelantan.

Economic Inequality between Ethnic
Group

Inequality
between ethnic groups has always been the most sensitive and important in
Malaysia history and contemporary. It is this inequality that gives birth to
the much debated New Economic Policy (NEP). This type of inequality is
dangerous. With unscrupulous politic propaganda, it could create racist riot
that will disrupt our economic progress. Therefore, after 55 years of
independent, there must not be any inequality between ethnic groups. British’s
“separate-and-rule” colonial policy must be replaced with strong nationalism
towards Vision 2020.

Two
questions to ask ourselves. Firstly, what is the true scenario of ethnic
inequality? Yet, answers are elusive because there are many twists and turn but
knowing the true version enables the country to completely solve it from the
root cause. Secondly, how can ETP solve this inequality?

Some
published reports may give some insights of the situation. Perhaps, the most shocking
is the “Corporate Equity Distribution:Past Trends and
Future Policy” report by Centre for Public Policy Studies (CPPS) of the Asian Strategy and Leadership Institute
(Asli). This report disputed the official figure on capital ownership by ethnic
groups. The report also claimed that affirmative policy in favor of Bumiputera
regardless of their income level or asset owned benefited the middle and upper
class, thus creating intra-Bumiputera wealth disparity and did not help much in
solving economic inequality between ethnic groups.

Between November 1997 and February 1999, Socio-Economic and
Environment Research Institute (Seri) surveyed 3,100 Indian households in
Penang. The results sadly shown that there is not much trickling down effect to
the Indian communities despite robust economic growth. Among shocking
highlights are (i) 60 percent were wage earners in the
lower income brackets, (ii) Seven percent were living in hardcore poverty,
(iii) Nearly 30 percent were squatters or living on temporary occupation
license land, (iv) At secondary level, 80 percent of pupils had stopped
schooling after Form Five, and (v) Nearly 40 percent of the state’s suicide
cases involved Indians.

Common
perspective is that Chinese community is relatively wealthier and get better
job. If it is so rosy, why Chinese recorded the highest brain drain? Financial
constraint has also deprived the poor Chinese of proper healthcare and children
schooling. There are some live in shabby house and involve in vice activities
due to financial poor condition.

We
have tried so many years and methods. Thus, it may be good time to try from new
perspectives. To solve this inequality, we should first take it out from being
misused as political tools. Then, instead of aggregate perspective based on
separated ethnic groups, micro perspective policies on intra-inequality within
each ethnic group could be tried out. We may try micro-financing program based
on merit, which has been successfully reduce poverty in Bangladesh. Education,
especially until tertiary level, can help break poverty cycle for all ethnic
groups. Meanwhile, moral and good ethnic cultivation can ensure holistic
development.

In
conclusion, inequality between sectors can be ignored. However, economic
disparity between geography (states or rural-urban gap) and between ethnic
groups could disrupt the country’s economic progress. Besides that, inequality
within each ethnic group is an important aspect that we overlook. In contrast,
it needs our urgent attention most.

[Chinese version published at Nanyang Press, 28th January 2013. Available online at http://www.nanyang.com/node/513422. This English version may be slightly different from the Chinese/ newspaper version]